Pieter A. Gautier

Unemployment and search externalities in a model with heterogeneous jobs and workers

This paper presents a matching model with low- and high-skilled workers and simple and complex jobs. I show that the degree to which low-skilled workers are harmed by high-skilled workers who are willing to temporarily accept simple jobs depends on the relative productivity of high- and low-skilled workers on simple jobs and on the quit rate of high-skilled workers. Under certain conditions, low-skilled workers can benefit from job competition with high-skilled workers. Within this framework, some explanations for the high and persistent unemployment rates of lower educated workers in the 1990s are evaluated.

The Right Man for the Job

This paper describes a search model with a continuum of worker and job types, transferable utility and an increasing returns to scale contact technology. We apply a second order Taylor expansion to characterize the equilibrium. One third of the increasing returns in contacts are absorbed by firms and workers being more choosy. Hence, strongly increasing returns in contact rates are consistent with weakly increasing returns in matching. The resulting equilibrium is not efficient. Unemployment benefits can reduce the loss by serving as a search subsidy. The loss caused by search frictions is higher when worker types are bad substitutes. Numerical simulations of the model show our Taylor expansions to be quite accurate.

Job Creation and Job Destruction by Small Firms: An Empirical Investigation for the Dutch Manufacturing Sector

This paper studies the differences in behaviour of small and large firms, concerning job creation and job destruction, in the Dutch manufacturing sector over the period 1978–1991. We find that both job creation and job destruction rates are higher in small firms than in large ones. In addition, we found that the persistence of jobs created in slumps are much higher for small firms than for large firms. Persistence rates of job destruction are, however, less connected to the state of the business cycle and increase with firm size. More importantly, small firms seem to reallocate their jobs in a continuous way, as job turnover moves independent of the business cycle. Large firms, on the other hand, reallocate counter-cyclically. An obvious explanation for this phenomenon is that small firms are better equipped to adjust to shifts in economic circumstances. Large firms adjust only slowly and for them reallocating jobs in a recession is more advantageous than in a boom.

Sin City? Why is the Divorce Rate Higher in Urban Areas?*

Divorce rates are higher in cities. Based on Danish register data, this paper shows that of the marriages formed in the city, those couples who remain in the city have a 23% higher divorce rate than those who move out. In this paper, we test whether this observation is due to sorting of more stable marriages into rural areas or if there exists a causal effect of living in urban areas on marriage instability. Our identification strategy supplements the timing-of-events approach with an instrumental variable. Our findings suggest that the effect of living in an urban area on the divorce risks drops substantially and loses statistical significance once we address sorting.

A note on Peters and Severinov, “Competition among sellers who offer auctions instead of prices”

We consider a market in which sellers compete for buyers by advertising reserve prices for second-price auctions. Applying the limit equilibrium concept developed in Peters and Severinov (1997) [1], we show that the competitive matching equilibrium is characterized by a reserve price of zero. This corrects a result in Peters and Severinov (1997) [1].

Non-sequential search, screening externalities and the public good role of recruitment offices

This paper focuses on a congestion externality in the labour market which is caused by non-sequential search. A model is presented in which unemployment is caused by selection delays of employers. It is shown that the individual probability to get a job offer is increasing in the number of applications while the aggregate hiring rate is decreasing in the average amount of applications per applicant. Moreover, in the decentralized equilibrium, screening information is lost when a worker is found unsuitable for a particular job and the next firm has to spend screening time on this worker again. The congestion externality can be reduced by institutions which specialize in screening large groups of workers such as temporary employment agencies, labour offices and head hunters, which only screen workers once before they allocate them to suitable jobs.

An Empirical Index for Labor Market Density

We derive a structural index for labor market density based on the Ellison-Glaeser index for industry concentration. The labor market density index serves as a proxy for the number of workers that are potentially available for jobs in a particular area. The index is based on observed home-work location patterns. It is particularly useful for testing theories where the scale of the market matters. We apply this index to a standard wage equation and find that it explains almost half of the cross-region wage variance.

Labor market search with two sided heterogeneity: hierarchical versus circular models

Abstract Search models with two-sided heterogeneity and hierarchical sorting are difficult to solve analytically. Teulings and Gautier (2004) apply Taylor expansions, which are only valid close to the Walrasian equilibrium. This paper applies a simpler circular model instead of the more realistic hierarchical model. Workers and firms are located on a circle. We derive the unique analytical equilibrium of this model and show that it has the same characteristics as the Taylor expansion of the hierarchical model. This raises hope that the former can be used as a proxy for the latter in more complex settings.

Job flows in Dutch manufacturing, 1979-1993. Empirical evidence and theoretical implications

In the past decade the number of studies in labour market dynamics has proliferated. Especially the papers by Davis and Haltiwanger ~1990, 1992! on job creation and job destruction in the USA were followed by a host of studies on job flows in other countries. Examples include Burda and Wyplosz ~1994! for a number of European countries, Leonard and Van Audenrode ~1993! for Belgium and Blanchflower and Burgess for the UK. In this paper, we will describe and characterize the flows of job creation and job destruction in the Dutch manufacturing sector and we will discuss the implications of our results for a number of currently developed economic theories on job and firm turnover. For extensive treatment of these recent theories, see Jovanovic~1982!, Davis and Haltiwanger ~1990!, Caballero and Hammour ~1994!, Burda and Wyplosz~1994!, and Mortensen and Pissardes ~1994!. Most empirical studies of job flows rely on longitudinal plant-level employment observations. For The Netherlands, we have three potential sources. The one used by Hamermesh et al. ~1994! is based on a data set of Dutch firms in all economic sectors. Its major drawback, however, is that it is limited to only one year, so no account can be taken of entry and exit of firms. The second source is an annual survey by the Dutch Chambers of Commerce including firms of all sectors for the period 1987–1992. In this data set, only firms with more than 50 employees are present on a full sample basis; cf. Van der Hoeven and Verhoeven ~1994!. The source we use is based on a panel of firm-level data in the manufacturing sector collected by The Netherlands’ Central Bureau of Statistics over the period 1978– 1993. Our main findings are summarized in the following points. ~1! Firms, even defined in a narrowly defined class ~two-digit SBI, the Dutch SIC system !, are

Search Frictions, Competing Mechanisms and Optimal Market Segmentation

In a market in which sellers compete for heterogeneous buyers by posting mechanisms, we analyze how the properties of the meeting technology affect the allocation of buyers to sellers. We show that a separate submarket for each type of buyer is the efficient outcome if and only if meetings are bilateral. In contrast, a single market with all agents is optimal if and only if the meeting technology satisfies a novel condition, which we call “joint concavity.” Both outcomes can be decentralized by sellers posting auctions combined with a fee that is paid by (or to) all buyers with whom the seller meets. Finally, we compare joint concavity to two other properties of meeting technologies, invariance and non-rivalry, and explain the differences.